MALAYSIANS are bracing for the cost of living to spiral in the near-term, although this phenomenon is unlikely to be cushioned by a salary raise anytime soon.
Moreover, as the domestic economy is still struggling to recover from the Herculean grip of the COVID-19 pandemic amid concerns over a spike on positive cases in recent times, it seems that everyone must rely on their ingenuity to discover their ways of making ends meet.
Malaysia’s headline inflation rose sharply to 1.7% year-on-year (yoy) in March (+0.1% yoy in February), the highest level since May 2018 as broadly expected by us and the market.
The acceleration was primarily driven by a steep turnaround in fuel and lubricating inflation (+17.5% yoy in March vs -4.9% yoy in February) reflecting the low base from last year’s plunge in oil prices amid the COVID-19 lockdowns globally.
Discarding the impact of fuel cost fluctuations, however, price pressures remained subdued with inflation excluding fuel components rising only slightly to 0.5% yoy (+0.4% yoy in February) and core inflation unchanged at 0.7% yoy for the fifth consecutive month.
Elsewhere, the costs of eating at home increased 1.6% yoy last month (+1.4% yoy in February), led by fresh meat (+0.6% yoy vs -0.6% yoy in February), fresh fish (+2.8% yoy vs +1.3% yoy in February) and fresh vegetables (+3.2% yoy vs +2.6% yoy in February).
The temporary reprieve, however, will come from the implementation of the Festive Season Maximum Price Control Scheme for Aidilfitri 2021 from April 21 to May 20 on 12 types of items.
To re-cap, dearer animal feed costs have led to soaring chicken prices of late. Chicken traders are lamenting that the government’s price ceiling always comes too late for them to cover their losses as chicken prices are prone to go up when a major festivity is round the corner.
CGS-CIMB Research expects the low base effect to likely dominate the inflation uptrend in the rest of 2021, but especially so in April and May.
“We see commodity prices as upside risks to inflation, though the imposition of ceiling prices for retail fuel (RON95 at RM2.05/litre and diesel at RM2.15/litre) limits the high pass-through effects of energy prices to the air transportation segment (+14.8% yoy in March vs. +19.7% yoy in February),” projected economist Michelle Chia in an economic update.
“We reiterate our annual inflation forecast for 2021 at 3.1% yoy which sits within Bank Negara Malaysia’s (BNM) 2.5-4.0% target range.”
CGS-CIMB Research expects BNM to look past the transitory inflationary upturn, preferring to keep the OPR at 1.75% to support economic recovery. – April 26, 2021
